Interim Results
Marks & Spencer Group PLC
06 November 2007
Marks and Spencer Group plc
Interim Results 2007/08
26 weeks ended 29 September 2007
H1 Results:
• Sales up 6.5% at £4.2bn: UK up 5.9%; International up 13.8%
• UK like-for-like sales up 1.6%: General Merchandise up 2.3%; Food up
0.5%
• Adjusted operating profit up 9.1% at £488.0m1; unadjusted operating
profit £586.3m
• Adjusted profit before tax up 11.5% at £451.8m1; unadjusted profit
before tax £550.1m
• Adjusted earnings per share up 15.1% at 19.1p1; unadjusted earnings per
share 23.2p
Q2 Trading:
• Q2 UK sales +5.4%: General Merchandise +3.3%; Food +7.5%
• Q2 UK like-for-like sales +1.2%: General Merchandise +1.7%; Food +0.5%
Financial Highlights:
• Capital expenditure expected to be £1.0 - £1.1bn for both 2007/08 and
2008/09
• Share buy-back of up to £1bn, equivalent to c.10% of issued share
capital
• Interim dividend up 31.7% at 8.3p per share
Stuart Rose, Chief Executive, said:
'We had a good first half despite a tough market impacted by unseasonable
trading conditions, and at a time when many of our stores were undergoing major
refurbishment.
'Whilst the short term economic outlook remains uncertain, the actions we have
taken to reposition and revitalise M&S over the last three years put us in a
good position to continue to outperform and give us confidence in the long term
growth prospects of the business.
'We continue to improve our core business. By Christmas we will have modernised
70% of our space. We will have around 90% completed by Christmas next year. We
are ahead of our space growth target and now have a pipeline which will deliver
15% growth in three years and 20% in four. Our Direct business is on course to
generate £500m of sales by 2010 and we are building momentum on International.
'We are stepping up our capital investment in the business and expect to spend
more than £1bn in 2007/08 and in 2008/09. Investing in the business remains our
priority but the strength of our balance sheet is such that we also intend to
repurchase up to £1bn of shares, representing around 10% of the Company's issued
share capital. In addition, the Board is announcing a step change in the interim
dividend to 8.3p up 31.7% on last year. These decisions reflect our confidence
in the strength and future prospects of the business.'
1 From continuing operations before property disposals and exceptional items
Chief Executive's Review:
We are making good progress against our plans to develop our business. Over the
next five years our priorities are:
• Driving the core business - product, service, environment and brand
stretch
• Property - developing, extending and growing our trading space
• Growing M&S Direct
• Developing our International business
• Delivering our Plan A objectives
Core business
Driving our core business to deliver better product, service and store
environment remains the priority.
In General Merchandise, better styling, more choice and further action on
pricing enabled us to grow volumes by 9%. Price deflation for the half was
around 5%. Clothing market share increased to 11.0% (TNS Worldpanel Fashion:
52 weeks ended 16 September 2007) with a strong performance in all areas.
We introduced further initiatives to develop our clothing brands and improve the
clarity of our product offer and in-store navigation. Better ranging in
Autograph, along with the introduction of Autograph Weekend in womenswear,
Autograph occasionwear in kids and the extension of the Autograph brand into
home accessories, have further strengthened our offer of better and best
merchandise across womens, mens, lingerie, and home. Limited Collection now
includes a range of basic fashion staples complementing the fast-fashion ranges.
Most of our brands are introducing more frequent newness and this has been a
significant factor in improving brand awareness for fashionability. Better ways
of working in our supply chain have enabled us to improve the phasing of product
launches with many of our brands refreshing their ranges every three to four
weeks.
We have trialled a number of initiatives to target our offer according to store
format and local customer demand. We believe that better cataloguing of our
product ranges will give us a real opportunity to drive sales by store type
going forward.
In Food, we delivered further strong sales growth, reflecting the contribution
from new space, strong performances in key product areas, realignment of prices
on key product lines, and a more targeted promotional stance. We opened 62
Simply Foods in the half, including 47 BP stores. Market share in Foods
increased to 4.3% (TNS Worldpanel, Food & drink: 52 weeks ended 7 October 2007).
We are committed to being the first choice for fresh, innovative, high quality,
convenient food. Healthy foods under our Eat Well logo account for some 30% of
our product ranges, while organic sales have grown by over 40%. We are
constantly upping the pace on innovation.
We continue to stretch the M&S brand into new areas and believe this is an
important area for future development. We have expanded our technology offer and
this is now in 25 stores as well as online. We have also extended our
hospitality offering and now have 27 Hot Food to Go counters, 7 eat over Delis,
4 restaurants and 1 M&S Kitchen.
We have delivered more consistent service with more stores delivering top scores
in our mystery shopping programme. We have introduced more food self-service
tills across the business, as well as a first trial in general merchandise. We
trialled an integrated 'multi-channel' ordering system for customers to order
from home and collect in store and vice versa: we plan to extend this service
further next year. As part of continued service training, we recently retrained
all of our in-store wine advisors to support the newly extended and improved
wine ranges.
As planned, 70% of our space will be in the modernised format by Christmas 2007,
completing a pivotal phase of our refurbishment programme. Trading held up well
over the half, despite significant disruption to some four million square feet
of space as a direct result of this programme. The last six weeks have seen us
relaunch our flagship stores in Belfast, Cheshunt, Edinburgh, Lisburn and London
Colney. London Pantheon re-launches in three weeks. The modernisation programme
continues to deliver strong incremental sales uplifts and returns.
We will commence the next phase of the modernisation programme in January 2008
with completion due by Christmas 2008, when we expect to have around 90% of the
portfolio in the modernised format.
To support the continuing growth of the business, we are investing in our supply
chain. In Foods we will add capacity to manage the growth and increased
complexity of the business. In General Merchandise we have entered into a 50/50
joint venture with ProLogis, a major international owner, manager and developer
of industrial distribution facilities, to co-own and develop, subject to
planning consent, a retail distribution centre in Bradford. The facility will
be leased to M&S and is expected to be operational by 2010.
We are also investing in our systems. We implemented a new Amazon platform to
support our Direct business. We installed new finance systems and also began a
major refresh of our store information technology. This will include new point
of sale systems which will help us further improve service in our stores.
Property
During the half we added 3.8% more trading space, representing over 500,000
square feet. In line with our property strategy we:
- extended space in a number of major out of towns and city centre stores;
- added to our retail park portfolio with the opening of 3 stores in West
Cornwall, Preston Deepdale and Kinnaird Park;
- extended the footprint of our Simply Food portfolio with the opening of
62 stores, including 47 BP franchise stores, taking the total to 267.
Since the end of the half year we have relocated our Derby store to a new 83,000
sq ft store, and opened a new 71,000 sq ft store in Pollok, Glasgow and a
further 14 Simply Foods.
We have been successful in identifying opportunities to improve the quality of
our store portfolio and add space, and are developing a healthy pipeline of new
stores. This will enable us to achieve our target of 15-20% more space in three
to four years, a year earlier than previously indicated. We are on track to add
4.5% more space to our UK store base this year and next year we plan to add a
further 7%. Major new stores include: Colliers Wood (April 2008) and White City
in London (September 2008).
M&S Direct
The relaunch of our website in March 2007 has led to a step change in activity
with sales up 60% driven by significant improvement in traffic and conversion
levels. We are pleased with the progress of Direct and continue to target £500m
of sales from this business by 2010.
We have worked hard on improving and extending the product ranges available to
our online customers, introducing more fringe sizes, including Big and Tall in
menswear, and a number of exclusive ranges, such as made-to-measure shirts. In
Foods, our wine and gift offers have also been extended.
We are improving our infrastructure and service levels with fulfilment from two
additional distribution centres. We trialled our first multi-channel service in
the half and intend to roll this out to more stores in due course.
International
International had a strong half with sales up 13.8% and profits up 31.3%. During
the half we opened two new stores in the Republic of Ireland, three stores in
Taiwan and 12 franchise stores, including two new territories, Lithuania and the
Ukraine. We have 257 stores in 36 countries and a strong brand that translates
well internationally and are now in a position to accelerate our growth plans.
In Ireland, we have built a strong pipeline of new stores and expect to add
30-40% of new space over the next five years. In Central and Eastern Europe, we
see substantial opportunities to grow from our existing franchise store base and
will be working with our partners to move this forward. In some cases this will
include investing with our franchise partners where we and they believe this
will facilitate a faster pace of growth and greater operating efficiency. We are
currently in discussions with a number of partners and expect to conclude
agreements in the coming months.
We also plan to invest in major developing markets including China and India. We
believe both of these markets offer substantial opportunities for us to develop
our brand. We have decided to enter China on a wholly-owned basis, leveraging
off the operational presence we already have in Hong Kong and Taiwan. We will
take a long term view of this market and expect to grow on a site by site basis
in order to manage our exposure and risk. We expect our first store to open
during the course of the next financial year. India is an equally exciting long
term opportunity and a market where we have been trading for 6 years. We are
looking to accelerate the pace of growth in this fast developing economy over
the next few years.
We believe that there is a significant opportunity to grow our International
business going forward and are targeting a 15-20% contribution to Group revenues
within the next five years.
Plan A
We continue to make good progress meeting our 100 point eco-plan, Plan A, but we
know there is still more to do. As part of our commitment to become carbon
neutral, we are announcing today that we have signed-up our first two suppliers
to provide us with renewable energy from anaerobic digester plants. Also, from
January, we will extend our trial of charging 5p for food carrier bags to 33
stores in the South West of England, with all profits going to environmental
projects. This follows the success of our trial in Northern Ireland where we saw
a reduction in carrier bag usage of 66%.
In addition:
- We opened our first three eco-stores last month at Bournemouth,
Gallashiels and Pollok. Our first wind turbine, on a farm in
Aberdeenshire, is now operational.
- We have maintained our position as the leading retailer of Fairtrade
cotton with sales to date in 07/08 currently at £15m. Organic food
sales increased 43% to £81m.
- Customers also helped us to raise over £600k in September for Save
the Children from sales of our back to school clothing ranges. The
money raised will assist over 15,000 children in Western Uganda to
go to school.
Current trading:
We have had a satisfactory start to the Autumn season. We expect the retail
environment to continue to be challenging and the outlook for consumer spending
to remain uncertain. However, we believe we are well positioned for the
important third quarter and into 2008. We will update on trading for the third
quarter on 9 January 2008.
Financial Review:
Summary of Results:* 26 weeks ended
29 Sept 2007 30 Sept 2006 % inc
£m £m
Total revenue 4,184.3 3,929.4 +6.5
UK 3,864.0 3,647.9 +5.9
International 320.3 281.5 +13.8
Operating profit before property disposals and exceptional items 488.0 447.4 +9.1
UK 435.5 407.4 +6.9
International 52.5 40.0 +31.3
Profit before tax, property disposals and exceptional items 451.8 405.1 +11.5
Profit on property disposals 3.3 1.4
Exceptional pension credit 95.0 -
Profit before tax 550.1 406.5 +35.3
Adjusted EPS 19.1p 16.6p +15.1
Dividend per share (declared) 8.3p 6.3p +31.7
* From continuing operations
Revenues
Total revenues were up 6.5% with strong performances in both the UK and
International businesses. Revenue growth by area, by quarter in the UK was:
Q1% Q2% H1%
Revenue
Clothing 3.5 2.8 3.1
Home 13.4 7.8 10.4
General Merchandise 4.3 3.3 3.8
Food 8.5 7.5 8.0
Total 6.4 5.4 5.9
Like-for-Like Q1% Q2% H1%
General Merchandise 2.9 1.7 2.3
Food 0.7 0.5 0.5
Total 2.0 1.2 1.6
UK revenues were up 5.9% with like-for-like growth of 1.6% despite the
challenging retail environment and significant disruption from our modernisation
programme. During the half, we added 3.8% of space (on a weighted average
basis), 8.4% in Food and 1.8% in General Merchandise.
International revenues were up 13.8% with good performances in both owned and
franchised stores, up 12.0% and 16.5% respectively. This was driven by strong
like-for-like performance and 17 new store openings.
Operating profit
Operating profit before property disposals and exceptional items was £488.0m, up
9.1%.
In the UK, operating profit before property disposals and exceptional items was
up 6.9% at £435.5m. The UK gross margin was level on the year at 43.6%. General
merchandise gross margin was up 80 basis points to 54.0% reflecting further
improvements in primary margin offset by higher markdowns arising out of the
summer sale. Food gross margin was 45 basis points down on last year at 33.8%
due to higher waste and the lower gross margin achieved at franchise stores,
which grew significantly in the period. The net operating margin for franchise
stores is above that achieved by owned Simply Food stores.
UK operating costs were up 5.6% to £1,261.2m. A breakdown of UK operating costs
is shown below:
26 weeks ended
29 Sept 2007 30 Sept 2006 %inc/
£m £m (dec)
Retail staffing 400.1 394.1 +1.5
Retail occupancy 402.9 361.7 +11.4
Distribution 174.8 154.3 +13.3
Marketing and related 62.2 56.8 +9.5
Support 203.4 194.4 +4.6
Total before bonus 1,243.4 1,161.3 +7.1
Bonus 17.8 33.1 -46.2
Total including bonus 1,261.2 1,194.4 +5.6
Retail staffing costs were well controlled, demonstrating an agile response to
the more difficult trading environment experienced over the summer months.
Despite this, our mystery shop scores, which measure the quality of service in
stores, continue to be very strong. The increase in retail occupancy costs
reflects space growth and increased depreciation related to the modernisation
programme. Distribution costs increased broadly in line with volume growth.
Further investment in marketing reflects additional campaigns, including
Kidswear. Support costs, which include non-store related overheads, were well
controlled.
We have accrued a bonus of £17.8m which compares to £33.1m last year. This
reflects a trading performance broadly in line with our plans this year,
compared to a substantial outperformance last year. The level of full year bonus
will depend on the Group's trading performance in the second half of the year.
The UK operating profit includes a contribution of £12.9m (last year - £11.4m)
from the Group's continuing economic interest in M&S Money.
International operating profit before property disposals was £52.5m, up 31.3%,
reflecting the strong sales performance of the business. Owned store operating
profits, increased by 8.1% to £22.6m. Franchise operating profits grew by 56.5%
to £29.9m.
Exceptional items
The exceptional pension credit of £95.0m (last year - nil) has arisen due to the
changes made in the terms of the UK defined benefit plan relating to how
members' future benefits build up from 1 October 2007. To the extent that
members have chosen the option to limit their future pensionable salary
increases in line with inflation, there is a past service credit to reflect the
impact of adjusting their projected final pensionable salaries.
Net finance costs
26 weeks ended
29 Sept 2007 30 Sept 2006
£m £m
Interest payable (53.6) (59.3)
Unwinding of discount on partnership liability (13.4) -
Finance costs (67.0) (59.3)
Finance income 2.0 7.0
Net finance costs before exceptional items and pension (65.0) (52.3)
finance income
Pension finance income 28.8 10.0
Net finance costs (36.2) (42.3)
Net finance costs for the half, before pension finance income, were up 24.3% at
£65.0m. This increase reflects the funding cost associated with the pension fund
partnership structure established in March 2007. This is effectively offset by
the higher level of pension finance income resulting from the reduction in the
deficit at 31 March 2007. Underlying net interest was in line with last year
despite slightly higher levels of average net debt. The effective interest rate
was 5.8% (last year - 5.9%).
Taxation
The taxation charge reflects an expected effective tax rate of 28.5% for the
full year (last year - 29.6%). The decrease reflects a reduction arising from
the expected decrease in the UK deferred tax liabilities resulting from the
reduction in Corporation tax rates on 1 April 2008.
Earnings per share
Adjusted earnings per share from continuing operations, which excludes the
effect of property disposals and exceptional items, increased by 15.1% to 19.1p
per share. The weighted average number of shares in issue during the period was
1,693.3m (last year - 1,684.2m).
Dividends
The Board is announcing an interim dividend of 8.3p, an increase of 31.7%. This
reflects an uplift of 15% in excess of the growth in adjusted earnings per
share. A similar 15% uplift above the growth in adjusted earnings per share will
apply to the final dividend for 2007/08. In 2008/09 the Board will return to its
existing policy of growing dividends broadly in line with adjusted earnings per
share for each half of the financial year.
Share buyback
The Board has decided to commence a programme to repurchase up to 10% of the
Company's issued share capital, representing around £1bn, using the authority
given by shareholders at the AGM held in July 2007. The buy back programme will
be financed in the short term out of existing resources. In due course we expect
to raise additional finance to complete the programme and maintain appropriate
liquidity levels going forward.
Capital expenditure
26 weeks ended
29 Sept 2007 30 Sept 2006
£m £m
Modernisation programme 294.3 208.2
New stores 85.0 75.0
International 19.1 23.7
Supply chain and technology 49.8 45.8
Maintenance 42.4 38.0
Total capital expenditure 490.6 390.7
Capital expenditure in the half was £490.6m compared with £390.7m last year.
The increased spend on the modernisation programme reflects a higher level of
space being modernised and the inclusion of a number of significant development
projects such as Belfast, Edinburgh, London Colney, Braehead and Cheshunt.
Capital on new stores was up to £85.0m reflecting the growing pipeline of space
coming on stream. Capital expenditure for 2007/08 is now expected to be c. £1.0
to £1.1bn. The increase compared to previous guidance reflects the faster than
anticipated growth in new space, including extensions to existing stores, and
the 50% joint venture commitment in respect of the proposed Bradford
distribution centre.
Cash flow and net debt
26 weeks ended
29 Sept 2007 30 Sept 2006
£m £m
Cash flow from continuing operations 351.0 494.7
Cash flow from discontinued operations - 0.7
Capex and disposals (559.2) (301.3)
Interest and taxation (92.5) (99.1)
Dividends and share issues (197.9) (142.1)
Other movements (31.9) 13.6
Net cash flow (530.5) (33.5)
Opening net debt (1,949.5) (1,729.3)
Exchange and other non-cash movements (1.9) 17.2
Closing net debt (2,481.9) (1,745.6)
The Group reported a net cash outflow of £530.5m (last year - outflow £33.5m).
Cash inflow from continuing operations decreased by £143.7m, reflecting a higher
working capital outflow due to the timing of pension payments, the 2006/07
bonus, increased investment in inventories and leasehold prepayments in respect
of new stores. Cash outflow on capital expenditure, net of disposals, was
£559.2m (last year - £301.3m) reflecting increased investment in our
modernisation programme, including several major store developments, as well as
more aggressive new space acquisition.
Pensions
At 29 September 2007 the IAS 19 net retirement benefit surplus was £127.4m (last
year - deficit £1,051.4m). The partnership liability to the Marks and Spencer UK
Pension scheme was £510.3m (last year - nil).
Statements made in this announcement that look forward in time or that express
management's beliefs, expectations or estimates regarding future occurrences and
prospects are 'forward-looking statements' within the meaning of the United
States federal securities laws. These forward-looking statements reflect Marks &
Spencer's current expectations concerning future events and actual results may
differ materially from current expectations or historical results. Any such
forward-looking statements are subject to various risks and uncertainties,
including failure by Marks & Spencer to predict accurately customer preferences;
decline in the demand for products offered by Marks & Spencer; competitive
influences; changes in levels of store traffic or consumer spending habits;
effectiveness of Marks & Spencer's brand awareness and marketing programmes;
general economic conditions or a downturn in the retail or financial services
industries; acts of war or terrorism worldwide; work stoppages, slowdowns or
strikes; and changes in financial and equity markets.
For further information, please contact:
Investor Relations: Media enquiries:
Amanda Mellor +44 (0)20 8718 3604 Corporate Press Office: +44 (0)20 8718 1919
Majda Rainer +44 (0)20 8718 1563
Investor & Analyst webcast:
There will be an investor and analyst presentation at 09.30 (BST) on Tuesday 6
November 2007. This presentation can be viewed live on the Marks and Spencer
Group plc website on: www.marksandspencer.com/thecompany.
Video interviews with Stuart Rose, Chief Executive and Ian Dyson, Group Finance
Director will be available on the above website. The interviews are also
available in audio and transcript.
Consolidated income statement
26 weeks ended
29 Sept 2007 30 Sept 2006 31 March 2007
Notes £m £m £m
Revenue - continuing operations 2 4,184.3 3,929.4 8,588.1
Operating profit - continuing operations 3 586.3 448.8 1,045.9
Finance income 4 30.8 17.0 33.8
Finance costs 4 (67.0) (59.3) (143.0)
Analysed between:
Before exceptional finance costs (67.0) (59.3) (112.6)
Exceptional finance costs 4 - - (30.4)
Profit on ordinary activities before taxation - continuing
operations 550.1 406.5 936.7
Analysed between:
Before property disposals and exceptional items 451.8 405.1 965.2
Profit on property disposals 3.3 1.4 1.9
Exceptional pension credit 3,9 95.0 - -
Exceptional finance costs - - (30.4)
Income tax expense 5 (156.8) (126.0) (277.5)
Profit on ordinary activities after taxation - continuing
operations 393.3 280.5 659.2
Profit from discontinued operation 6 - 0.8 0.7
Profit for the period 393.3 281.3 659.9
Attributable to:
Equity shareholders of the Company 393.2 281.3 659.9
Minority interest 0.1 - -
393.3 281.3 659.9
Basic earnings per share 7A 23.2p 16.7p 39.1p
Diluted earnings per share 7B 23.0p 16.5p 38.5p
Basic earnings per share from continuing operations 7A 23.2p 16.7p 39.1p
Diluted earnings per share from continuing operations 7B 23.0p 16.5p 38.5p
Non-GAAP measure:
Adjusted profit before taxation (£m) 1 451.8 405.1 965.2
Adjusted basic earnings per share from continuing operations 7A 19.1p 16.6p 40.4p
Adjusted diluted earnings per share from continuing 7B 18.9p 16.4p 39.8p
operations
Consolidated statement of recognised income and expense
26 weeks ended
29 Sept 2007 30 Sept 2006 31 March 2007
£m £m £m
Profit for the period attributable to shareholders 393.2 281.3 659.9
Foreign currency translation differences 6.8 (13.0) (14.0)
Actuarial gain/(loss) on retirement benefit scheme 288.5 (244.4) (8.6)
Cash flow and net investment hedges
- (losses)/profit deferred in equity (15.7) 7.6 (7.4)
- recycled and reported in net profit 6.0 - 10.7
- amount recognised in inventories 3.2 (4.8) 2.1
Tax on items taken directly to equity (93.6) 86.9 24.5
Net profit/(loss) not recognised in the income statement 195.2 (167.7) 7.3
Total recognised income and expense for the period 588.4 113.6 667.2
Prior period adjustment 1 - 48.4 -
588.4 162.0 667.2
Consolidated balance sheet
As at As at As at
29 Sept 2007 30 Sept 2006 31 March 2007
(restated)
Notes £m £m £m
ASSETS
Non-current assets
Intangible assets 198.5 172.8 194.1
Property, plant and equipment 4,372.9 3,823.0 4,044.5
Investment property 25.1 38.4 25.1
Investment in joint venture 9.4 9.2 9.3
Other financial assets 3.0 3.0 3.0
Retirement benefit asset 9 149.0 - -
Trade and other receivables 277.8 236.5 247.0
Deferred tax assets - 150.9 11.6
5,035.7 4,433.8 4,534.6
Current assets
Inventories 517.1 466.2 416.3
Other financial assets 47.7 48.3 50.9
Trade and other receivables 309.1 225.3 196.7
Derivative financial instruments 5.2 66.7 2.4
Cash and cash equivalents 207.3 218.9 180.1
1,086.4 1,025.4 846.4
Total assets 6,122.1 5,459.2 5,381.0
LIABILITIES
Current liabilities
Trade and other payables 887.5 953.3 1,043.9
Derivative financial instruments 13.2 6.3 8.3
Borrowings and other financial liabilities 1,018.0 915.1 461.0
Current tax liabilities 96.1 89.9 87.3
Provisions 5.8 7.0 5.7
2,020.6 1,971.6 1,606.2
Non-current liabilities
Borrowings and other financial liabilities 1,271.0 1,159.5 1,234.5
Partnership liability to the Marks & Spencer UK Pension 510.3 - 496.9
Scheme
Retirement benefit deficit 9 21.6 1,051.4 283.3
Trade and other payables 96.3 76.7 87.6
Derivative financial instruments 1.3 6.6 0.2
Provisions 14.5 17.7 16.8
Deferred tax liabilities 163.0 6.1 7.3
2,078.0 2,318.0 2,126.6
Total liabilities 4,098.6 4,289.6 3,732.8
Net assets 2,023.5 1,169.6 1,648.2
EQUITY
Called up share capital - equity 425.4 421.7 424.9
Share premium account 208.0 173.7 202.9
Capital redemption reserve 2,168.5 2,168.5 2,168.5
Hedging reserve (10.7) (5.0) (4.4)
Other reserves (6,542.2) (6,542.2) (6,542.2)
Retained earnings 5,773.1 4,952.9 5,397.1
Total shareholders' equity 10 2,022.1 1,169.6 1,646.8
Minority interest in equity 1.4 - 1.4
Total equity 2,023.5 1,169.6 1,648.2
Consolidated cash flow information
CASH FLOW STATEMENT
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
Notes £m £m £m
Cash flows from operating activities
Cash generated from operations - continuing 12A 351.0 494.7 1,442.6
Cash generated from operations - discontinued 12B - 0.7 0.7
Tax paid (77.0) (74.7) (150.8)
Net cash inflow from operating activities 274.0 420.7 1,292.5
Cash flows from investing activities
Disposal of subsidiary, net of cash disposed - 48.5 48.8
Capital expenditure and financial investment 12C (556.0) (300.6) (712.8)
Interest received 1.2 7.2 13.2
Net cash outflow from investing activities (554.8) (244.9) (650.8)
Cash flows from financing activities
Interest paid (16.7) (31.6) (123.4)
Exceptional interest paid - - (21.6)
Other debt financing 12D 534.1 (145.5) (479.2)
Equity dividends paid (203.5) (154.6) (260.6)
Other equity financing 12E (26.3) (5.9) 9.2
Net cash inflow/(outflow) from financing activities 287.6 (337.6) (875.6)
Net cash inflow/(outflow) from activities 6.8 (161.8) (233.9)
Effects of exchange rate changes 0.2 (1.4) (1.5)
Opening net cash 47.0 282.4 282.4
Closing net cash 54.0 119.2 47.0
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Opening net debt (1,949.5) (1,729.3) (1,729.3)
Net cash inflow/(outflow) from activities 6.8 (161.8) (233.9)
Cash (inflow)/outflow from (decrease)/increase in current financial (3.2) (0.4) 2.6
assets
Cash (inflow)/outflow from (increase)/decrease in debt (534.1) 145.5 479.2
financing
Debt financing net of liquid resources disposed with - (16.8) (16.8)
subsidiary
Fair value movement on derivatives - 19.4 67.0
Partnership liability to the Marks & Spencer UK Pension Scheme (non-cash) - - (495.6)
Exchange and other non-cash movements (1.9) (2.2) (22.7)
Movement in net debt (532.4) (16.3) (220.2)
Closing net debt (2,481.9) (1,745.6) (1,949.5)
1 General information and basis of preparation
The results for the first half of the financial year have not been audited and are prepared on the basis of the
accounting policies set out in the Group's 2007 Annual Report and Financial Statements. The financial information
has been prepared in accordance with the Disclosure and Transparency rules of the Financial Services Authority and
with International Accounting Standard (IAS) 34 - 'Interim Financial Reporting' as endorsed by the European Union.
These consolidated financial statements for the period do not constitute statutory financial statements within the
meaning of s240 of the Companies Act 1985.
The summary of results for the year ended 31 March 2007 is an extract from the published Annual Report and Financial
Statements which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The
audit report was unqualified and did not contain a statement under s237(2) or s237(3) of the Companies Act 1985.
Following a change in external interpretation of IAS 12 - 'Income Taxes' the Group's accounting policy for deferred
tax now more closely reflects the manner in which management expects to recover or settle the carrying amounts of
its buildings through sale or use. The opening balance sheet at 2 April 2006 has been restated to recognise £48.4m
of additional deferred tax assets and reserves. There is no material impact of this change on the income statement.
The Directors believe that the 'adjusted' profit and earnings per share measures provide additional useful
information for shareholders on underlying performance of the business, and are consistent with how business
performance is measured internally. It is not a recognised profit measure under IFRS and may not be directly
comparable with 'adjusted' profit measures used by other companies.
2 Revenue
The Group's primary reporting segments are geographic, with the Group operating in two geographic areas being the UK
and International. The geographic segments disclose revenue and operating profit by destination and reflect
management responsibility. Within each geographic segment the Group sells both Food and General Merchandise and
secondary segment disclosure is given for revenue.
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
UK Retail 3,864.0 3,647.9 7,977.5
International Retail
Owned stores1 190.2 169.8 369.5
Franchised stores 130.1 111.7 241.1
320.3 281.5 610.6
Total revenue 4,184.3 3,929.4 8,588.1
1Owned stores consists of the Marks & Spencer owned businesses in the Republic of Ireland, Hong Kong and Taiwan.
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
UK Retail
General Merchandise 1,867.9 1,800.0 4,002.8
Food 1,996.1 1,847.9 3,974.7
3,864.0 3,647.9 7,977.5
International Retail
General Merchandise 228.4 196.2 423.9
Food 91.9 85.3 186.7
320.3 281.5 610.6
Total revenue 4,184.3 3,929.4 8,588.1
Sales of General Merchandise and Food are subject to seasonality due to higher demand during the Christmas period
which falls in the second half of the financial year.
3 Operating profit
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
UK Retail1
Before property disposals and exceptional items 435.5 407.4 956.5
Property disposals 3.3 1.4 0.2
Exceptional pension credit2 95.0 - -
533.8 408.8 956.7
International Retail
Owned stores 22.6 20.9 45.4
Franchised stores 29.9 19.1 42.1
Before property disposals 52.5 40.0 87.5
Property disposals - - 1.7
52.5 40.0 89.2
Total operating profit 586.3 448.8 1,045.9
1 UK Retail operating profit includes a contribution of £12.9m (last half year £11.4m) from M&S Money under the
terms of our arrangement with HSBC.
2 The exceptional pension credit has arisen due to changes in the UK defined benefit plan relating to how members'
benefits build up from 1 October 2007. To the extent that members have chosen the option to limit their future
pensionable salary increases to inflation there is a past service credit to reflect the impact of adjusting their
projected final pensionable salaries.
4 Finance income/(costs)
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Finance income
Bank and other interest receivable 2.0 7.0 13.0
Pension finance income (net) 28.8 10.0 20.8
30.8 17.0 33.8
Finance costs
Interest payable on bank borrowings, facilities and medium term notes (51.8) (57.4) (107.4)
Amortisation of issue costs of bank loans (0.5) (0.7) (1.5)
Interest payable on finance leases (1.3) (1.0) (2.2)
Dividend on non-equity B shares - (0.2) (0.2)
Unwinding of discount on partnership liability to the Marks & Spencer UK (13.4) - (1.3)
Pension Scheme
Before exceptional finance costs (67.0) (59.3) (112.6)
Exceptional finance costs1 - - (30.4)
(67.0) (59.3) (143.0)
Net finance costs (36.2) (42.3) (109.2)
1 The exceptional finance costs represent the unamortised transaction costs, a one-off make-whole premium and the
cancellation of the swaps arising on the redemption of £317.2m of secured bonds. These bonds were redeemed in order
to release properties for use in the limited partnership with the Marks & Spencer UK Pension Scheme.
5 Taxation
The taxation charge for the 26 weeks ended 29 September 2007 is based on an estimated full year effective tax rate
of 28.5% (last full year 29.6%).
This rate reflects a 1% reduction due to the expected decrease in UK deferred tax liabilities, resulting from the
reduction in corporation tax rates on 1 April 2008.
6 Discontinued operation
On 31 March 2006, the Group announced the sale of Kings Super Markets Inc to a US investor group for $61.5m
excluding cash in the business at the date of disposal. The disposal of the business was completed on 28 April 2006.
7 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of
ordinary shares in issue during the period.
The adjusted earnings per share figures have been calculated in addition to the earnings per share required by IAS
33 - 'Earnings per Share' and are based on earnings excluding the effect of property disposals and exceptional
items. These have been calculated to allow the shareholders to gain an understanding of the underlying trading
performance of the Group.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume
conversion of all dilutive potential ordinary shares. The Group has only one class of dilutive potential ordinary
shares being those share options granted to employees where the exercise price is less than the average market price
of the Company's ordinary shares during the period.
Details of the adjusted earnings per share are set out below:
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Earnings after tax 393.2 281.3 659.9
Profit from discontinued operations - (0.8) (0.7)
Earnings after tax attributable to equity shareholders - continuing 393.2 280.5 659.2
Property disposals (net of tax) (3.3) (1.4) (1.4)
Exceptional pension credit (net of tax) (66.5) - -
Exceptional finance costs (net of tax) - - 23.9
Adjusted earnings after tax - continuing 323.4 279.1 681.7
Weighted average number of ordinary shares in issue 1,693.3 1,684.2 1,688.6
(millions)
Potentially dilutive share options under Group's share option schemes 19.4 22.6 26.3
(millions)
Weighted average number of diluted ordinary shares (millions) 1,712.7 1,706.8 1,714.9
A Basic earnings per share
Weighted average number of ordinary shares in issue 1,693.3 1,684.2 1,688.6
(millions)
Basic earnings per share (pence) 23.2 16.7 39.1
Profit from discontinued operations per share - - -
(pence)
Basic earnings per share - continuing (pence) 23.2 16.7 39.1
Property disposals per share (pence) (0.2) (0.1) (0.1)
Exceptional pension credit (net of tax) (3.9) - -
Exceptional finance costs per share (pence) - - 1.4
Adjusted basic earnings per share - continuing (pence) 19.1 16.6 40.4
B Diluted earnings per share
Weighted average number of ordinary shares 1,712.7 1,706.8 1,714.9
(millions)
Diluted earnings per share (pence) 23.0 16.5 38.5
Profit from discontinued operations per share - - -
(pence)
Diluted earnings per share - continuing (pence) 23.0 16.5 38.5
Property disposals per share (pence) (0.2) (0.1) (0.1)
Exceptional pension credit (net of tax) (3.9) - -
Exceptional finance costs per share (pence) - - 1.4
Adjusted diluted earnings per share - continuing (pence) 18.9 16.4 39.8
8 Dividends
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Final dividend of 9.2p per share (last year 7.5p per share) 203.5 154.6 154.6
Prior period interim dividend of 6.3p per share - - 106.0
203.5 154.6 260.6
The Directors have approved an interim dividend of 8.3p per share (last half year 6.3p per share) which, in line
with the requirements of IAS 10 - 'Events after the Balance Sheet Date', has not been recognised within these
results. This results in an interim dividend of £141.2m (last half year £106.0m) which will be paid on 8 January
2008 to shareholders whose names are on the Register of Members at the close of business on 16 November 2007. The
ordinary shares will be quoted ex dividend on 14 November 2007. Shareholders may choose to take this dividend in
shares or in cash.
9 Retirement benefits
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Opening net retirement benefit deficit (283.3) (794.9) (794.9)
Current service cost (55.1) (54.7) (113.9)
Exceptional pension credit (note 3) 95.0 - -
Curtailment gain - 1.0 2.0
Interest cost (140.7) (129.0) (261.2)
Expected return on assets 169.5 139.0 282.0
Employer contributions 53.5 31.6 611.3
Actuarial gain/(loss) 288.5 (244.4) (8.6)
Closing net retirement benefit asset/(deficit) 127.4 (1,051.4) (283.3)
Analysed on the balance sheet as:
Retirement benefit asset 149.0 - -
Retirement benefit deficit (21.6) (1,051.4) (283.3)
Closing net retirement benefit asset/(deficit) 127.4 (1,051.4) (283.3)
The main financial assumptions used to assess the liabilities of the scheme have been updated by independent
qualified actuaries to assess the liabilities of the scheme. The most significant of these are the discount rate and
the inflation rate which are 5.8% (last full year 5.3%) and 3.2% (last full year 3.0%) respectively.
The amount of the asset/deficit varies if the main financial assumptions change, particularly the discount rate. If
the discount rate increased/decreased by 0.1% the IAS 19 net asset would increase/decrease by c.£100m.
10 Statement of changes in shareholders' equity
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Opening shareholders' equity as previously reported 1,646.8 1,155.3 1,203.7
Prior period adjustment - Deferred tax (note 1) - 48.4 -
Opening shareholders' equity restated 1,646.8 1,203.7 1,203.7
Profit for the period attributable to shareholders 393.2 281.3 659.9
Dividends (203.5) (154.6) (260.6)
Foreign currency translation differences 6.8 (13.0) (14.0)
Shares issued on exercise of share options 5.6 12.5 44.9
Purchase of shares held by employee trusts (31.9) (18.4) (18.4)
Purchase of call option for Company's shares - - (17.3)
Actuarial gain/(loss) on retirement benefit scheme 288.5 (244.4) (8.6)
Deferred tax on retirement benefit scheme (86.5) 73.3 4.0
Charge for share-based payments 16.7 12.8 27.3
Deferred tax on share schemes (7.3) 13.8 22.3
Cash flow and net investment hedges (6.5) 2.8 5.4
Deferred tax on cash flow and net investment hedges 0.2 (0.2) (1.8)
Closing shareholders' equity 2,022.1 1,169.6 1,646.8
11 Capital commitments
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Commitments in respect of assets in the course of construction 497.6 272.2 265.8
In the event of a material change in the trading arrangements with certain warehouse operators, the Group has a
commitment to purchase property, plant and equipment, at values ranging from historical net book value to market
value, which are currently owned and operated by them on the Group's behalf.
12 Cash flow analysis
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
A Cash flows from operating activities - continuing
Profit on ordinary activities after taxation 393.3 280.5 659.2
Income tax expense 156.8 126.0 277.5
Interest payable and similar charges 67.0 59.3 (33.8)
Interest receivable (30.8) (17.0) 143.0
Operating profit 586.3 448.8 1,045.9
Increase in inventories (100.8) (92.4) (42.8)
(Increase)/decrease in receivables (110.6) 3.4 12.5
Payments to acquire leasehold properties (37.9) - (13.5)
(Decrease)/increase in payables (62.4) (5.0) 136.6
Exceptional operating cash outflow - (0.5) (4.2)
Depreciation and amortisation 158.0 129.0 282.7
Share-based payments 16.7 12.8 27.3
Profit on property disposals (3.3) (1.4) (1.9)
Exceptional pension credit (95.0) - -
351.0 494.7 1,442.6
B Cash flows from operating activities - discontinued
Profit on ordinary activities after taxation - 0.7 0.7
Profit on sale of business - (0.4) (0.4)
Operating profit - 0.3 0.3
Decrease in working capital - 0.1 0.1
Depreciation and amortisation - 0.3 0.3
- 0.7 0.7
C Capital expenditure and financial investment
Purchase of property, plant and equipment (552.9) (286.6) (666.9)
Proceeds from sale of property, plant and equipment 7.0 1.5 2.9
Purchase of intangible fixed assets (13.3) (16.2) (46.5)
Sale of non-current financial assets - 0.3 0.3
Sale/(purchase) of current financial assets 3.2 0.4 (2.6)
(556.0) (300.6) (712.8)
D Debt financing
Cash inflow from borrowings 46.4 - 21.6
Drawdown of syndicated bank facility 488.8 - 296.4
Redemption of securitised loan notes - (1.4) (319.6)
Redemption of medium term notes - (92.2) (818.2)
Issue of medium term notes - - 397.5
(Decrease)/increase in obligations under finance leases (1.1) 2.8 (2.2)
Redemption of B shares - (54.7) (54.7)
534.1 (145.5) (479.2)
E Other equity financing
Shares issued under employee share schemes 5.6 12.5 44.9
Purchase of own shares held in employee trusts (31.9) (18.4) (18.4)
Purchase of call option for Company's shares - - (17.3)
(26.3) (5.9) 9.2
13 Reconciliation of net debt to balance sheet
26 weeks ended Year ended
30 Sept
29 Sept 2007 2006 31 March 2007
£m £m £m
Balance sheet and related notes
Cash and cash equivalents 207.3 218.9 180.1
Current financial assets 47.7 48.3 50.9
Bank loans, overdrafts and commercial paper (226.4) (104.6) (159.7)
Syndicated bank facility (787.9) - (296.9)
Medium term notes (1,212.9) (1,606.7) (1,177.3)
Securitised loan notes - (310.4) -
Finance lease liabilities (61.8) (52.9) (61.6)
Partnership liability to the Marks & Spencer UK Pension Scheme (510.3) - (496.9)
(2,544.3) (1,807.4) (1,961.4)
Interest payable included within related borrowing 62.4 61.8 11.9
Total net debt (2,481.9) (1,745.6) (1,949.5)
Principal risks and uncertainties
The principal risks and uncertainties which could impact the Group's long-term
performance remain those detailed on pages 40 and 41 of the Group's 2007 Annual
Report and Financial Statements, a copy of which is available on the Group's
website www.marksandspencer.com. The Chief Executive's Review in this Interim
Management Report includes a commentary of the primary uncertainties affecting
the Group for the remaining six months of the year.
Statement of directors' responsibilities
The directors' confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union, and that
the interim management report herein includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8.
The directors of Marks and Spencer Group plc are listed in the Group's 2007
Annual Report and Financial Statements, with the exception of the following
changes in the period: Jack Keenan retired on 10 July 2007, and Martha Lane Fox
was appointed on 1 June 2007. A list of current directors is maintained on the
Group's website: www.marksandspencer.com.
By order of the Board
Ian Dyson
Group Finance Director
5 November 2007
Independent review report to Marks and Spencer Group plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 29
September 2007, which comprises the consolidated income statement, the
consolidated balance sheet, the consolidated statement of recognised income and
expense, the consolidated cash flow statement and related notes. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. This report, including the conclusion, has been prepared for and only
for the company for the purpose of the Disclosure and Transparency Rules of the
Financial Services Authority and for no other purpose. We do not, in producing
this report, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 29 September 2007 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants London
5 November 2007
This information is provided by RNS
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